UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended....... September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _____
Commission file number 000-23105
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HISPANIC TELEVISION NETWORK, INC.
(Exact Name of Small Business Issuer as Specified in Its
Charter)
Delaware 75-2504551
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
6125 Airport Freeway, Suite 200, 76117
Fort Worth, Texas (Zip Code)
(Address of Principal Executive
offices)
Issuer's telephone number, including area code: (817) 222-1234
(Former Name, Former Address and Former Fiscal Year, if changed
since last report)
--------------
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that
the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
State the number of shares outstanding of each of the issuer's
classes of common equity as of the latest practicable date.
As of November 1, 2000, there were approximately 91,031,381
shares of our common stock issued and outstanding.
Transitional Small Business Disclosure Format:
Yes [ ] No [ X ]
HISPANIC TELEVISION NETWORK, INC.
TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . .. 1
Condensed Balance Sheets as of September 30, 2000 2
(unaudited) and December 31, 1999 . . . . .
Condensed Statements of Operations for the three 3
and nine months ended September 30, 2000
(unaudited) and September 30, 1999 (unaudited) .
Statement of Stockholders' Equity as of 4
September 30, 2000 (unaudited) . . . . . . . .
Condensed Statements of Cash Flow for the nine months 5
ended September 30, 2000 (unaudited) and
September 30, 1999 (unaudited) . . . . . . . . .
Notes to Condensed Financial Statements (unaudited) . 6
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations . . . . . .
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities . . . . . . . . . . . . . . . 15
Item 3. Defaults Upon Senior Securities . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders. 15
Item 5. Other Information . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 15
Signatures
ii
PART I FINANCIAL INFORMATION
This Quarterly Report on Form 10-QSB contains forward-
looking statements within the meaning of Section 24A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements appear in a number of
places including Item 1. "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Such statements can be identified by the use of forward-
looking terminology such as "believes," "expects," "may,"
"estimates," "will," "should," "plans" or "anticipates"
or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy.
Readers are cautioned that any such forward-looking
statements are not guarantees of future performance and
involve significant risks and uncertainties, and that actual
results could differ materially from those projected in the
forward-looking statements. This report identifies factors
that could cause such differences. No assurance can be given
that these are all of the factors that could cause actual
results to vary materially from the forward-looking
statements.
1
Item 1. FINANCIAL STATEMENTS
Hispanic Television Network, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
2000 1999
------------ ------------
Assets
Current Assets
Cash and cash equivalents $ 3,910,405 $ 52,655
Accounts Receivable, net 71,263 19,250
Prepaids and other current assets 1,154,056 167,739
------------ ------------
Total current assets 5,135,724 239,644
Property and equipment, net 4,534,458 1,423,826
Other assets 9,229,146 436,052
Goodwill, net 7,755,952 2,396,069
------------ ------------
Total assets $ 26,655,280 $ 4,495,591
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable $ 363,086 $ 1,142,697
Accrued Liabilities 275,390 66,489
Notes Payable 677,179 1,356,299
Accrued Interest 414,673 336,353
Deferred Revenue 300,000 --
Programming Contracts Payable 1,861,750 --
Current portion of capital leases 130,925 --
Revolving Line of Credit -- 500,000
Credit Facility Payable 6,771,158 400,000
----------- ------------
Total Current Liabilities 10,794,161 3,801,838
Long Term Liabilities
Obligation Under Capital Lease 268,636 --
------------ ------------
Total Liabilities 11,062,797 3,801,838
Stockholders' equity:
Convertible Preferred Stock, $1.00 par value:
Authorized shares - 10,000,000
Issued and outstanding - 42,427 275,774 275,774
Common Stock, 200,000,000 shares
authorized, 90,947,645 issued and
outstanding at September 30, 2000
and 78,101,596
at December 31, 1999 909,476 781,016
Additional Capital 30,883,034 3,074,282
Accumulated Deficit (16,475,801) (3,437,319)
------------ ------------
Total stockholders' equity 15,592,483 693,753
------------ ------------
Total liabilities and
stockholders' equity $ 26,655,280 $ 4,495,591
============ ============
See accompanying notes
2
<TABLE>
Hispanic Television Network, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<CAPTION>
For the Three Months
Ended September 30,
For the Nine Months
Ended September 30,
2000
1999
2000
1999
<S>
<C>
<C>
<C>
<C>
Revenue
$ 140,845
$ 31,794
$ 395,704
$ 46,194
Expenses:
Programming Expenses
1,489,558
-
2,368,230
-
Satellite rental
182,133
-
626,842
-
Production expenses
86,184
2,620
263,645
4,720
Rental expense, net
15,775
37,036
1,837
53,072
Administrative Expenses
1,987,129
63,517
3,696,951
114,090
Salaries and wages
998,492
105,286
2,286,563
126,297
Non-cash compensation - Stock
Options
310,476
-
914,204
-
Depreciation
103,655
5,059
234,634
15,176
Amortization
339,843
1,811
1,010,180
5,432
------------
----------
------------
----------
Total expenses
5,513,245
215,329
11,403,086
318,787
------------
----------
------------
----------
Loss from Operations
(5,372,400)
(183,535)
(11,007,382)
(272,593)
Other Income/Expenses
Interest expense, net
1,753,012
15,101
2,031,100
15,101
------------
----------
------------
----------
Net Loss
$ (7,125,412)
$ (198,636)
$(13,038,482)
$ (287,694)
============
============
============
============
Basic and diluted net loss per share
($0.08)
($0.00)
($0.15)
($0.00)
============
============
============
============
Weighted average shares outstanding
90,914,831
23,307,692
87,860,747
22,269,231
============
============
============
============
</TABLE>
See accompanying notes.
3
<TABLE>
Statement of Stockholders' Equity
September 30, 2000
(Unaudited)
<CAPTION>
Preferred
Shares
_________
Preferred
Stock
__________
Common
Shares
_____________
Common
Stock
__________
Additional
Capital
______________
Accumulated
Deficit
______________
Total
______________
<S>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
Balance at December 31, 1999
$ 42,427
$ 275,774
$ 78,101,596
$ 781,016
$ 3,074,282
$ (3,437,319)
$ 693,753
Common stock issued for HTVN
Private Placement
--
--
10,000,000
100,000
9,900,000
--
10,000,000
Common stock cancelled due to
judgment net of contingent
award for legal services
--
--
(318,325)
(3,183)
2,562,024
--
2,558,841
Common stock issued for
employee compensation
--
--
20,000
200
(200)
--
--
Common stock issued as
settlement
--
--
1,271,449
12,714
1,994,940
--
2,007,654
Common stock issued in
connection with exercise
of warrants
--
--
1,129,500
11,295
2,247,705
--
2,259,000
Compensation of expense
related to issuance of
stock options
--
--
--
--
914,204
--
914,204
Common stock issued for
consulting services
--
--
49,000
490
436,568
--
437,058
Common stock issued for
programming services
--
--
100,000
1,000
727,000
--
728,000
Common stock issued for
acquisition of company
--
--
120,000
1,200
1,261,300
--
1,262,500
Stock options issued for
acquisition of company
--
--
--
--
399,300
--
399,300
Common stock issued for
professional services
--
--
9,425
94
77,672
77,766
Common stock issued for
station acquisitions
--
--
465,000
4,650
3,652,239
--
3,656,889
Issuance of Warrants
--
--
--
--
3,636,000
--
3,636,000
Net Loss
--
--
--
--
--
(13,038,482)
(13,038,482)
Balance at September 30, 2000
$ 42,427
$ 275,774
$ 90,947,645
$909,476
$ 30,883,034
$ (16,475,801)
$ 15,592,483
</TABLE>
See accompanying notes.
4
<TABLE>
Hispanic Television Network, Inc.
Condensed Statements of Cash Flows
For the Nine Months Ended September 30, 2000
(Unaudited)
<CAPTION>
<S>
<C>
<C>
2000
--------------
1999
------------
Operating Activities
Net Loss
$ (13,038,482)
$ (287,694)
Adjustment to reconcile net loss to net cash used
by operating activities:
Compensation expense related to stock options
914,204
--
Common stock issued for consulting services
437,058
--
Amortization
1,010,180
5,432
Depreciation
234,634
15,176
Interest expense from discount of warrant options
1,532,156
--
Interest expense related to extinguishments of debt
237,887
--
Changes in operating assets and liabilities:
Accounts receivable
(52,013)
--
Other assets
650,294
(500,000)
Prepaid and other assets
(393,169)
--
Accounts payable
(779,611)
--
Other liabilities
2,770,212
201,787
Accrued Interest
78,320
--
--------------
------------
Net cash used in operating activities
(6,398,330)
(565,299)
--------------
------------
Investing Activities
Purchase of property and equipment
(3,345,266)
(88,068)
Station acquisitions and licenses
(3,981,298)
--
--------------
------------
Net cash used in investing activities
(7,326,564)
(88,068)
--------------
------------
Financing Activities
Payments on line of credit
(500,000)
500,000
Payments on notes payable
(679,120)
184,958
Proceeds from private placement
9,600,000
--
Proceeds from credit facility
6,902,764
--
Proceeds from exercise of stock warrants
2,259,000
--
--------------
------------
Net cash provided by financing activities
17,582,644
684,958
--------------
------------
Net cash increase
3,857,750
31,591
Cash, beginning of period
52,655
89
--------------
------------
Cash at end of period
$ 3,910,405
$ 31,680
==============
============
Cash paid for interest
$ 39,001
$ --
==============
============
Cash paid for income taxes
$ --
$ --
==============
============
</TABLE>
See accompanying notes.
5
Hispanic Television Network, Inc.
Notes to Condensed Financial Statements
September 30, 2000
(Unaudited)
1. General
The financial statements of Hispanic Television
Network, Inc. ("the Company") as of September 30, 2000
and for the three and nine-month periods ended
September 30, 2000 and 1999 are unaudited and have been
prepared in accordance with accounting principles
generally accepted in the United States for interim
financial information and with instructions to Form 10-
QSB and Item 3-10 of Regulation S-B. Accordingly, they
do not include all of the information and footnotes
required by generally accepted accounting principles
for annual financial statements. While management of
the Company believes that the disclosures presented are
adequate, these interim financial statements should be
read in conjunction with the financial statements and
notes included in the Company's 1999 Form 10-KSB. In
the opinion of management, the accompanying unaudited
financial statements contain all adjustments,
consisting only of normal recurring adjustments,
necessary for a fair presentation of the Company's
financial statements for the interim periods presented.
The results of operations for the three-month and nine-
month periods ended September 30, 2000 and 1999 are not
necessarily indicative of the results to be expected
for the entire year. The balance sheet at December 31,
1999 has been derived from the audited financial
statements at that date but does not include all of the
information and footnotes required by generally
accepted accounting principles for complete financial
statements. The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from
those estimates.
Organization
Hispanic Television Network, Inc. ("the Company") is
the successor entity formed by the merger on December
15, 1999 of American Independent Network, Inc. ("AIN")
and Hispano Television Ventures, Inc. ("HT Ventures").
AIN, a publicly held corporation, was incorporated in
Delaware on December 11, 1992 under the name Strictly
Business, Inc., changing its name to AIN on September
16, 1993. In March 1994, AIN began providing
programming, media production, and syndication
services to television stations. AIN entered into
agreements to provide television broadcast stations
with programming (television shows) for digital
television broadcasting. Such agreements typically
provide that the Company retains certain of the
advertising time and advertising revenues generated
from the programming. HT Ventures, a privately held
corporation, was incorporated in Texas on February 24,
1998. The Company's purpose is to provide television
service to the Hispanic community.
On September 2, 1999, HT Ventures entered into a
transaction ("HT Ventures Transaction") whereby HT
Ventures purchased 11,000,000 previously unissued
shares of AIN common stock for total purchase
consideration of $500,000 in cash. As a result, of the
HT Ventures Transaction, HT Ventures owned
approximately 60% of the then outstanding shares of
common stock of AIN. Subsequently, on December 15,
1999, HT Ventures completed the merger ("the Merger")
with and into AIN, the legal surviving entity, and
changed AIN's name to the Hispanic Television Network,
Inc. ("the Company"). Pursuant to the terms of the
Merger Agreement, stockholders of HT Ventures received
a total of 70,000,000 shares of AIN common stock in
exchange for the then outstanding shares of HT
Ventures. As part of the Merger Agreement, the
11,000,000 shares purchased by HT Ventures on September
2, 1999, in connection with the HT Ventures
Transaction, were cancelled upon the finalization of
the merger on December 15, 1999. The Merger Agreement
provided for AIN to issue 70,000,000 shares of common
stock in exchange for all the outstanding shares of HT
Ventures. The common stock exchanged, in addition to
the existing AIN preferred and common shares previously
outstanding, collectively results in the new
capitalization of Hispanic Television Network, Inc.
formerly American Independent Network, Inc. Subsequent
to the Merger, HT Ventures stockholders owned
approximately 90% of AIN.
Accordingly, the Merger was accounted for as a "reverse
acquisition" using the purchase method of accounting
with HT Ventures being the "accounting acquirer". In a
reverse acquisition, the historical stockholders'
equity of the accounting acquirer prior to the merger
is retroactively restated (a recapitalization) for the
equivalent number of shares received in the merger
after giving effect to any difference in par value of
the issuers and acquirer's stock by an offset to paid
in capital.
Risks and Uncertainties
The Company is still in the early stages of executing
its business plans to be a major network focusing on
the Mexican Hispanic market. Early stage companies
involve significant risks and uncertainties about the
ultimate market acceptance of its business strategies.
Lack of market acceptance would have a material adverse
impact on the Company. Additionally, the Company must
raise significant capital in order to execute its plan.
If the Company cannot raise the necessary funds, its
ability to build out its network will be significantly
impacted.
2. Debt
In July 2000, the Company entered into a $8,875,001
credit facility with Goff Moore Strategic Partners,
L.P. and a number of other private investors.
$1,958,333 of the funds under the credit facility have
not been released to the Company and are being held in
escrow pursuant to the terms of the credit facility,
as amended. The credit facility is being used to fund
acquisitions and working capital. Pursuant to the terms
of the credit facility, the Company (i) executed
promissory notes that bear interest at a rate of 12%
per annum and (ii) issued warrants to purchase shares
of the Company's common stock, the aggregate number of
shares for which the warrants are exercisable will be
determined by dividing (a) the aggregate amount of
funds loaned under the credit facility and accrued
interest thereon by (b) the exercise price, which is
determinable based on subsequent financings or other
events, but in no event will exceed $2.00 per share. In
the event that the Company does not pay off the funds
advanced under the credit facility and accrued interest
by January 31, 2001, the aggregate number of shares
issuable upon exercise of the warrants, as described
above, will be multiplied by 125%, however, if the
Company does not pay off such funds and such accrued
interest by March 15, 2001, that aggregate amount of
shares will be multiplied by 150% instead of $125%.
The estimated fair value of the warrants of $3.636
million will be recognized as additional interest
expense over the term of the credit facility. As of
September 30, 2000, $8.875 million was outstanding
under this arrangement net of $2.104 million, which
represents the net unamortized fair value of the
warrants.
On November 6, 2000 the terms of the credit facility
were amended to allow $1,000,000 of previously
escrowed funds to be released to the Company. In
exchange for the release of $1,000,000 from escrow, the
amendment to the credit facility provided that (i) in
no event would the exercise price of the warrants
issued under the credit facility exceed $2.00 per share
and (ii) the aggregate number of shares issuable upon
exercise of the warrants would be multiplied by 125%,
after taking into account any adjustment in such number
of shares caused by a failure of the Company to pay off
the funds advanced under the credit facility and
accrued interest by January 31, 2001.
3. Stockholders' Equity
Private Placement
In January 2000, the Company closed a Private Placement
whereby the Company sold 100 units, each unit
consisting of 100,000 shares of common stock of the
Company (the units were offered pursuant to Rule 506 of
Regulation D promulgated under the Securities and
Exchange Act) and 100,000 warrants to purchase one
share of the Company's common stock at an exercise
price of $2.00 per share. The warrants expire one year
after the termination of the Private Placement. The
Company received gross proceeds in January 2000 of
$9,600,000 to complete the $10,000,000 offering
pursuant to the Private Placement. The Company had
previously received $400,000 of the proceeds in 1999.
In June 2000, the Company issued 1,128,500 shares of
its common stock in connection with the exercise of
stock warrants issued during the Private Placement in
January 2000. The Company received proceeds of
$2,257,000, or $2.00 per share, from the exercise of
the stock warrants. In September 2000, the company
issued an additional 1,000 shares of its common stock
and received $2,000 at $2.00 a share in connection with
the exercise of warrants issued in the January 2000
Private Placement.
Stock Option Plan
In February 2000, the Company agreed to adopt the 2000
Stock Incentive Plan (the Plan), subject to stockholder
approval. The Board of Directors will appoint a
committee to administer the Plan. At the discretion of
the committee, stock options may be granted to eligible
participants, as defined. The options will generally
vest over two to three years and the exercise price is
typically equal to or greater than the market value of
the Company's common stock on the date of grant. The
Company is currently working with Ernst & Young to
finalize the stock option plan.
During the nine-month period ended September 30, 2000,
the Company issued to employees options to purchase
1,068,240 shares of the Company's common stock. The
options vest over a three-year period and have exercise
prices ranging from $0.01 to $14.88 per share. Options
to purchase 635,000 shares were granted at amounts less
than the fair value of the underlying stock on the
grant date, resulting in $4,310,003 of deferred
compensation expense to be recognized over the
remaining vesting term. The Company recognized $310,476
and $914,204 of compensation expense related to the
options for the three and nine-month period ended
September 30, 2000.
Programming Services
In January 2000, the Company entered into an agreement
with a programming provider. In exchange for
programming services, the Company issued 100,000 shares
of the Company's common stock. These services were
valued at $728,000, and the expense will be recorded
over a six-month period. The Company recorded
approximately $363,999 and $606,666 of programming
expense, for the three and nine-month period ended
September 30, 2000.
The Company has entered into agreements with various
programming providers. These agreements guarantee
minimum license fees from the programming. The Company
has $1,861,750 for programming payable. The Company
has a programming Asset in the amount of $1,900,291
currently. The programming asset will be amortized
over the contract periods ranging from three to forty-
eight months. The Company recorded approximately
$843,604 of programming expense for these items for the
three month period ended September 30,2000.
Settlements
In June, 2000 the Company entered into several
settlement agreements with certain individuals to
release the Company of any and all claims the
individuals had or may have against the Company. In
connection with these settlement agreements, the
Company issued 1,231,449 shares of the Company's common
stock. The settlements were for matters existing with
the Company's predecessor and therefore have been
treated as additional purchase price and accordingly
recorded as goodwill.
Canceled Shares
The Company canceled 475,169 shares of its common stock
in January 2000 and 70,000 shares of its common stock
in April 2000. The shares were returned to the Company
as part of a settlement with John Priscella of our
claims against him.
Legal Services
In June, 2000, the Company issued 226,844 shares of its
common stock with a value Of $2,558,841 in return for
legal services provided in a matter related to the
Company's predecessor and John Priscella. The matter
resulted in the return to the Company of 680,000 shares
of stock. Accordingly, the fair value of these shares
of $2,558,841 has been treated as additional purchase
price and recorded as goodwill.
Acquisition Televideo and MGB Entertainment
On July 11, 2000, the Company issued 120,000 shares of
its common stock, valued at $1,262,500, and options
valued at $399,300 to acquire 100% of the outstanding
stock of Televideo,Inc. and MGB Entertainment, Inc. The
acquired entities are based in San Antonio, Texas and
focus on the production of both English and Spanish
language television programs and commercials. The
acquired entities produce syndicated and network
television programming as well as television
commercials for advertising agencies and businesses.
The operations of HTVN include the operations of
Televideo, Inc. and MGB Entertainment, Inc. since the
acquisition date.
4. Acquisitions of TV Stations
On January 10, 2000, we completed funding of the
initial payment of $1.5 million to Carlos Ortiz in
connection with the Purchase Agreement, dated December
15, 1999, pursuant to which we agreed to purchase 10
television stations in Texas, New Mexico, Oklahoma, and
Arizona for an aggregate of $10.0 million from Carlos
Ortiz. The purchase price was comprised of $7.0 million
in cash and $3.0 million in shares of our common stock,
which equals 695,652 shares based on our common stock's
closing price on December 31, 1999. Currently, we are
operating all of these stations under a local marketing
agreement ("LMA") whereby we control all programming,
receive all revenues from and pay all expenses
associated with each of these stations pending the
closing of this transaction, which we have the right to
schedule at any time during the two years following the
execution of the purchase agreement. We currently
anticipate that we will close this transaction in 2000
or early 2001. The LMA fee of $1.5 million is being
amortized over the remaining twenty-four month term to
close the transaction.
On April 24, 2000, the Company entered into a letter of
intent to acquire Certain assets of TV-21 in Orlando,
Florida from Galloway Associates, PA for $600,000.
On April 28, 2000, the Company entered into a purchase
agreement with Johnson Broadcasting of Dallas, Inc. to
acquire the television station KLDT, Channel 55, Lake
Dallas, Texas and its auxiliary facilities including
all broadcasting assets for $35 million. On November
7, 2000 we received a Default Notice from legal counsel
for the seller of the station claiming that the Company
is in default under the purchase agreement, as amended.
The seller is giving the Company an opportunity to cure
the alleged default.
On April 28, 2000, the Company entered into a purchase
agreement to acquire certain assets of Channel 69 in El
Paso, Texas from Sara Diaz Warren for $1,500,000. The
Company expects the transaction to close during 2000 or
early 2001. The Company has entered into a time
brokerage agreement pursuant to which the Company will
operate the station pending consummation of the
agreement.
On May 17, 2000, the Company entered into a letter of
intent to acquire certain assets of Channel 68 in
Laredo, Texas from J.B. Salazar for $500,000. The
Company expects this transaction to close during 2000 or
early 2001. The Company has entered into a time
brokerage agreement to operate this station until the
close of this transaction.
On September 27, 2000, we entered into an agreement of
merger with Brownsville Broadcasting, LLC, which owns
and operates K64FM in Brownsville/Harlingen, Texas and
an asset purchase agreement to acquire certain assets
of KKJK in Las Vegas, Nevada from Cosmo Communications,
LLC and Amanda Orrick Mintz for an aggregate purchase
price of $5,335,000. Under the terms of these
agreements, the transactions must close by December
2001. The Company has entered into a time brokerage
agreement to operate these stations until the close of
the transactions.
5. Legal Proceedings
From time to time, the Company is involved in
litigation incidental to its business. In the Company's
opinion, no litigation to which the Company is
currently a party, if decided adversely to the Company,
is likely to have a material adverse effect on the
Company's results of operation or financial condition.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Background
On December 14, 1999, American Independent Network, or
AIN, merged with Hispano Television Ventures, Inc., a
producer of Spanish-language programming, and was renamed
Hispanic Television Network, Inc. Originally formed on
December 11, 1992, AIN has historically operated as a
general market, family-oriented television network
providing programming and other services. We currently
operate two networks, AIN, which has over 40 affiliates,
and HTVN, which has 5 affiliates and either owns, operates
or has agreements or letters of intent to acquire 22
television stations in 12 markets of which 18 stations are
currently broadcasting HTVN programming in 11 markets,
including 3 that are in the top ten markets ranked by DMA.
We intend, whether through the acquisition of or affiliation
with stations, to acquire a presence in certain of the top
20 markets ranked by Hispanic population in order to reach
approximately 75% of the Hispanic population. The purpose
of the merger was to position the company to become a major
Hispanic media company. The company has been actively growing
our distribution networks by aggressively acquiring owned
and operated stations as well as adding affiliated stations.
The company has also been building our sales network and
acquiring quality programming to broadcast across our
network.
We are targeting the Mexican Hispanic market because
we believe that it presents vast marketing opportunities
and that it is currently under-served by our competition.
With few competitors in this rapidly growing market, we
feel that there are unlimited opportunities to provide a
quality broadcasting service to a Hispanic population
that is experiencing an explosive growth rate.
Our financial results depend on a number of factors,
including the strength of the national economy and the
local economies served by our stations, total advertising
dollars dedicated to the markets served by our stations,
advertising dollars dedicated to the Hispanic consumers in
the markets served by our stations, our stations' audience
ratings, our ability to provide interesting programming,
local market competition from other television stations
and other media, and government regulations and policies.
As is common in other media companies, our performance
is measured by our ability to generate broadcast cash flow,
EBITDA and after-tax cash flow. Broadcast cash flow
consists of operating income before depreciation,
amortization and corporate expenses. EBITDA consists of
earnings before extraordinary items, net interest expense,
income taxes, depreciation, amortization, and other income
and expenses. After-tax cash flow consists of income before
income tax benefit (expense) and extraordinary items,
minus the current income tax provision, plus depreciation
and amortization expense. Although broadcast cash flow,
EBITDA and after-tax cash flow are not measures of
performance calculated in accordance with generally
acceptable accounting principals, we feel that broadcast
cash flow, EBITDA and after-tax cash flow are useful in
evaluating us because these measures are acceptable by
the broadcasting industry as generally recognized measures
of performance and are used by securities industry analysts
who publish reports on the performance of broadcasting
companies. Broadcast cash flow, EBITDA and after-tax cash
flow are not intended to be substitutes for operating
income as determined in accordance with generally
acceptable accounting principles, or alternatives to cash
flow from operating activities (as a measure of liquidity)
or net income.
For accounting purposes, the merger was treated as
a reverse acquisition of the Company by Hispano Television
Ventures. The following discussion reflects the material
operations of Hispanic Television Network, Inc. for the
three and nine-month periods ended September 30, 2000.
Revenues
Our primary source of revenue is the sale of
advertising on our networks to national advertisers
and on our television stations to local and national
advertisers. Our revenues are affected primarily by the
advertising rates that we are able to charge on our
networks and that our television stations are able to
charge as well as the overall demand for Hispanic
television advertising time. Advertising rates are determined
primarily by:
o the markets covered by our networks,
o the number of competing Hispanic television
stations in the same market as our stations,
o the television audience share in the demographic
groups targeted by advertisers, and
o the supply and demand for Hispanic advertising
time.
Seasonal fluctuations are also common to the broadcast
industry and are due primarily to fluctuations in
advertising expenditures by national and local advertisers.
The first calendar quarter typically produces the lowest
broadcast revenues for the year because of the normal
post-holiday decreases in advertising.
Historically, our network advertising has been sold
targeting direct response and per inquiry advertisers.
Going forward, we will deploy a network advertising team
consisting of account executives that will solicit
advertising directly from national advertisers as well as
soliciting advertising from national advertising agencies.
Each of our stations will also have account executives
that will solicit local and national advertising directly
from advertisers and from advertising agencies.
We market our advertising time on our HTVN and AIN
networks to:
o ADVERTISING AGENCIES AND INDEPENDENT ADVERTISERS.
We sell commercial time to advertising agencies
and independent advertisers. The monetary value of
this time is based upon the estimated size of the
viewing audience; the larger the audience, the
more we are able to charge for the advertising
time. To measure the size of a viewing audience
networks and stations generally subscribe to
nationally recognized rating services, such
as Nielsen. Currently, a number of AIN's
affiliate stations are located in the smaller
market areas of the country. Our goal is to enter
into affiliate agreements with stations located
in the top demographic market areas for both AIN
and HTVN, in order to obtain Nielsen ratings that
justify charging higher rates for our advertising
time.
o AFFILIATE STATIONS. In exchange for providing
programming and advertising time to our affiliate
stations, we retain advertising time and gain
access to the affiliate stations' markets. In a
traditional broadcasting contract, an affiliate
station would retain all available advertising
time, which it would then sell to outside
advertisers, and the network would receive a fee
from the affiliate station. However, we believe
that by selling retained commercial time to
outside advertisers, we are able to generate
higher revenues than we would otherwise receive
in fees from our affiliate stations. Advertising
time is generally a component of the programming
contract with affiliate stations. As a result,
we are not required to separately market the
advertising time to our affiliate stations.
o PROGRAM OWNERS. In exchange for licensing rights
to select programming, we sometimes give the
program owner advertising time during the
broadcast of such programming. The program owner
is then able to sell the advertising time to
outside parties. We generally contract with
program owners at the National Association of
Television Program Executives convention and
accordingly, are not required to actively market
this segment of our advertising time.
Expenses
Our most significant expenses are employee compensation,
rating services, advertising and promotional expenses,
engineering and transmission expenses and production and
programming expenses. In some cases, we are required to
incur up-front programming expenses when procuring
exclusive programming usages and licenses. In most all cases
associated with up-front programming payments, the up-front
payments will be amortized over the applicable contract
term. Historically, significant exclusive programming
usages and licenses have not been procured. We will
maintain tight controls over our operating expenses by
centralizing our master control, network programming,
finance, human resources and management information
system functions. Depreciation of fixed assets and
amortization of costs associated with the acquisition
of additional stations are also significant elements in
determining our total expense level.
As a result of attracting key officers and personnel
to HTVN, we have offered stock options as an alternate
form of compensation. In the event that the strike price
of the stock option is less than the fair market value
of the stock on the date of grant, any difference will be
amortized as compensation expense over the vesting period
of the stock options.
Our monthly operating expense level will vary from
month to month due primarily to the timing of significant
advertising and promotion expenses. We will incur
significant advertising and promotion expenses associated
with the ramp up of HTVN and with the establishment of
our presence in new markets associated with our new
station acquisitions. Increased advertising revenue
associated with these advertising and promotional expenses
typically lag behind the incurrence of these expenses.
Advertising
The majority of all revenues generated come from the
sale of network, national spot, and local spot advertising
on our owned and operated stations.
NETWORK ADVERTISING. All owned and operated stations
as well as affiliates have a percentage of available
commercial time dedicated for "network" sales. The
commercials sold on the network are broadcast simultaneously
in all markets that we serve.
NATIONAL SPOT ADVERTISING. National advertisers have
the opportunity to buy "spot" advertising in specific
markets. For example, an advertising agency in New York
would use spot advertising to purchase commercials in
San Antonio and Oklahoma City.
LOCAL SPOT ADVERTISING. Advertising agencies and
businesses located in a market will buy commercial air
time in their respective market. This commercial time is
sold in the market by a local sales force. Local spot
advertising also includes event marketing. In conjunction
with a spot buy the station incorporates events that may
be held on the premise of a business or advertiser for
the purpose of driving traffic to that place of business.
Our in-house sales department will generate our
Network and National spot advertising sales. They will
be located in all major markets that have a large
concentration of advertising agencies targeting the
Hispanic market. The sales of our local spot advertising
will be generated by the local sales staff established at
each of our television stations.
Results of Operations
Three and Nine Months Ended September 30, 2000 and 1999
Revenues. Revenues are primarily derived from our
programming services, sales of advertising and programming
time, and leasing of digital satellite channels. The
Company's total revenues increased by $109,051 for the
three months ended September 30, 2000, and increased
$349,510 for the nine months ended September 30, 2000,
from the comparable periods in the prior year. The
increase in revenues is primarily the result of an increase
in the amount of programming time, national and local sales,
and production revenues generated from our Televideo
subsidiary.
Cost of Operations. The Company's cost of operations
increased $5,297,916 for the three months ended
September 30, 2000, and increased $11,084,299 for the nine
months ended September 30, 2000, from the comparable period
in the prior year. Cost of operations has significantly
increased over prior years as a result of rapid expansion
and positioning of our new Hispanic network.
General and Administrative. The Company's general
and administrative expenses for the three months ended
September 30, 2000, increased by $3,106,033 and for the
nine months ended September 30, 2000, increased by
$6,606,096, from the comparable periods in the prior year.
General and administrative expenses are comprised primarily
of salary and wages, legal fees, taxes, insurance, rent
and office related expenses. Salaries and wages increased
by $893,206 for the three months ended September 30, 2000
and $2,160,266 for the nine months ended September 30,
2000, from the comparable periods in the prior year.
These increases were attributable to increased staffing
requirements as a result of the Company's rapid expansion.
Professional fees increased by $1,105,305 for the three
months ended September 30, 2000 and $1,984,263 for the
nine months ended September 30, 2000, from the comparable
periods in the prior year. These increases were
attributable to costs associated with being a public company.
Interest expense for the three months ended
September 30, 2000, increased by $1,737,911, and
increased by $2,015,999 for the nine months ended
September 30, 2000, from the comparable periods in the
prior year. The increase in interest expense is due
primarily to outstanding notes payable, and interest on
promissory notes issued in connection with the credit
facility entered into with Goff Moore Strategic Partners
and other private investors.
Operating Results. The Company's net operating loss
increased by $6,926,776 for the three months ended
September 30, 2000, and increased by $12,750,788 for the
nine months ended September 30, 2000, from the comparable
periods in the prior year. The increased loss for 2000 was
a result of the expansion and positioning of our networks.
Earnings Per Share of Common Stock. The net losses per
common share are based upon the weighted average of
outstanding common stock. For the nine months ended
September 30, 2000, the net loss per share of common stock
was $(.15). The loss is reflective of the expansion and
positioning of our networks.
Liquidity and Capital Resources
We have financed our operations through a combination
of the issuance of equity securities to private investors,
issuance of private debt, loans from affiliates, and cash
flow from operations. We have had cumulative losses of
$16,475,801 from inception through September 30, 2000.
Current assets at September 30, 2000 were $5,135,724.
Current liabilities of $8,801,486 exceeds current assets
by $3,665,762. As of September 30, 2000, the largest
components of current liabilities consisted of accounts
payable, notes payable and an amount of $8,875,001 payable
pursuant to a credit facility entered into with Goff Moore
Strategic Partners and other private investors.
Financing activities included a private placement
which closed in January 2000. The Company raised $10
million from the sale of 10 million shares of common
stock and warrants to purchase an equivalent number of
shares at $2.00 per share. These funds were used primarily
for the acquisition of television stations, programming,
repayment of debt and working capital needs. These private
placement investors have the ability to exercise their
warrants up until one year after the private placement.
In July 2000, the Company entered into a $8,875,001
credit facility with Goff Moore Strategic Partners, L.P.
and a number of other private investors. $1,958,333 of
the funds under the credit facility have not been released
to the Company and are being held in escrow pursuant to
the terms of the credit facility, as amended. The credit
facility is being used to fund acquisitions and working
capital. Pursuant to the terms of the credit facility, the
Company (i) executed promissory notes that bear interest at
a rate of 12% per annum and (ii) issued warrants to
purchase shares of the Company's common stock, the
aggregate number of shares for which the warrants are
exercisable will be determined by dividing (a) the aggregate
amount of funds loaned under the credit facility and accrued
interest thereon by (b) the exercise price, which is
determinable based on subsequent financings or other events,
but in no event will exceed $2.00 per share. In the event
that the Company does not pay off the funds advanced under
the credit facility and accrued interest by January 31,
2001, the aggregate number of shares issuable upon exercise
of the warrants, as described above, will be multiplied by
125%, however, if the Company does not pay off such funds
and such accrued interest by March 15, 2001, that aggregate
amount of shares will be multiplied by 150% instead of
$125%. The estimated fair value of the warrants of
$3.636 million will be recognized as additional interest
expense over the term of the credit facility. As of
September 30, 2000, $8.875 million was outstanding under
this arrangement net of $2.104 million, which represents
the net unamortized fair value of the warrants.
On November 6, 2000 the terms of the credit facility
were amended to allow $1,000,000 of previously escrowed
funds to be released to the Company. In exchange for the
release of $1,000,000 from escrow, the amendment to the
credit facility provided that (i) in no event would the
exercise price of the warrants issued under the credit
facility exceed $2.00 per share and (ii) the aggregate
number of shares issuable upon exercise of the warrants
would be multiplied by 125%, after taking into account
any adjustment in such number of shares caused by a
failure of the Company to pay off the funds advanced under
the credit facility and accrued interest by January
31, 2001.
Our continued growth will require additional funds
that may come from a variety of sources, including equity
or debt issuances, bank borrowings and capital lease
financings. We currently intend to use any funds raised
through these sources to fund various aspects of our
continued growth, including to acquire new stations,
to perform digital upgrades of acquired stations, to
fund key programming acquisitions, to perform station
capital upgrades, to secure cable connections, to fund
master control / network equipment upgrades, to make
strategic investments and to fund our working capital
needs. If funds from these various sources are not
available, the Company has the ability to pursue an
alternate strategy of growth ,whereby the Company can
expand its distribution capabilities by entering in to
affiliated station agreements. This strategy of growth
is much less capital intensive.
We had net losses of $13,038,482 in the nine months
ended September 30, 2000 and $287,694 in the nine months
ended September 30, 1999. We expect these losses to
continue as we incur significant capital expenditures
and operating expenses to acquire new television stations and
convert them to a Hispanic format. We currently anticipate
that our revenues as well as cash from financings will be
sufficient to satisfy operating expenses for the next
twelve months. We may need to raise additional funds,
however. If adequate funds are not available on
acceptable terms, our business, results of operations and
financial condition could be materially adversely affected.
Impact of inflation
Management does not believe that general inflation
has had or will have a material effect on operations.
Recent Developments
On September 27, 2000, we entered into an
agreement of merger with Brownsville Broadcasting, LLC,
which owns and operates K64FM in Brownsville/Harlingen,
Texas and an asset purchase agreement to acquire certain
assets of KKJK in Las Vegas, Nevada from Cosmo
Communications, LLC for an aggregate purchase price of
$5,335,000. Under the terms of these agreements, the
transactions must close by December 2001. The Company has
entered into a time brokerage agreement to operate these
stations until the close of the transactions.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is involved in litigation
incidental to its business. In the Company's opinion, no
litigation to which the Company is currently a party, if
decided adversely to the Company, is likely to have a
material adverse effect on the Company's results of operation
or financial condition.
In response to the application of the Company to the
Federal Communications Commission for the assignment of the
FCC license for KVAW(TV), Eagle Pass, Texas to the Company,
there was on October 6, 2000, a Petition to Deny filed by
Juan Wheeler, Jr., whom the Company had entered into a Bill
of Sale and Settlement Agreement with pertaining to KVAW(TV).
The Company has since responded. The Company believes that
Wheeler's Petition to Deny is without merit and intends to
continue to support its pending assignment application.
Item 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
In the Company's Amended Annual Report on Form 10-
KSB/A filed on June 30, 2000, it was reported in Item 1.
Business - Markets Served that the Company was operating
station KVAW (TV) in Eagle Pass, Texas. This was incorrect
as the Company has never operated this station. As a result,
the correct number of stations broadcasting HTVN
programming was ten as of the filing of that report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NO. DESCRIPTION AND METHOD OF FILING
2.1 Merger Agreement with Hispano Television
Ventures, Inc., dated October 15, 1999
(Incorporated by reference to Exhibit 10.1
of our Current Report on Form 8-K, dated
December 30, 1999).
3.1 Certificate of Incorporation (Incorporated by
reference to Exhibit 2.1 of American Independent
Network, Inc.'s General Form for Registration of
Small Business Issuers on Form 10-SB, dated
September 18, 1997), amended by a Certificate
of Merger (Incorporated by reference to Exhibit
10.3 of our Current Report on Form 8-K, dated
December 30, 1999).
3.2 Bylaws (Incorporated by reference to Exhibit 2.2
of American Independent Network, Inc.'s General
Form for Registration of Small Business Issuers
on Form 10-SB, dated September 18, 1997), with
a Bylaw Amendment (Incorporated by reference to
Exhibit 3.2 of our Current Report on Form 8-K,
dated December 30, 1999).
4.1 Certificate of Designation Preferences, Rights
and Limitations of Series B Preferred Stock of
American Independent Network Inc. (Incorporated
by reference to Exhibit 4.1 of our Annual
Report on Form 10-KSB, dated April 24, 2000).
10.1* Asset Purchase Agreement, dated as of September
27, 2000, by and between Hispanic Television
Network, Inc., Cosmo Communications, LLC and
Amanda Orrick Mintz.
10.2* Agreement of Merger, dated as of September
27, 2000, by and among Hispanic Television
Network, Inc., HTV Merger Corp., Amanda
Orrick Mintz, Michael Mintz and Debra Kamp
and Brownsville Broadcasting, LLC.
10.3* First Amendment to Loan Agreement and other
Documents, dated effective as of August 14,
2000, by and among Hispanic Television Network,
Inc., Goff Moore Strategic Partners, L.P. and
GAINSCO, Inc., representing Majority Lenders,
as Defined in the Loan Agreement, and Harlan
L. Paul, Mark Hollmann and Stacia Hollmann,
as tenants by the entireties, Clifton Morris,
and Daniel E. Berce.
10.4* Second Amendment to Loan Agreement and
Agreement, dated as of November 6, 2000
by and among Hispanic Television Network, Inc.,
Goff Moore Strategic Partners, L.P. and
GAINSCO, Inc., representing Majority Lenders
as defined in the Loan Agreement.
10.5* First Amendment to Purchase Agreement made and
entered into as of September 24, 2000 by and
between Hispanic Television Network, Inc. and
Johnson Broadcasting of Dallas, Inc.
27* Financial Data Schedule (included in SEC-filed
copy only).
*Filed herewith.
(b) REPORTS ON FORM 8-K.
During October 2000, we filed one Current Report on Form
8-K/A regarding the consummation of the acquisition of
100% of the outstanding stock of TeleVideo, Inc. and MGB
Entertainment, Inc. and related transactions.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has
duly caused this amended report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HISPANIC TELEVISION NETWORK INC.
Date: November 9, 2000 By: /S/ JAMES A. RYFFEL
________________________
James A. Ryffel
Chairman of the Board
